Speeches and Testimony

Statement by

Frank S. Holleman, III
Deputy Secretary

Before the

U.S. House of Representatives
Subcommittee on Labor, Health and Human Services, and Education Appropriations

On the

Fiscal Year 2001 Request for Management

March 28, 2000

Mr. Chairman and members of the Subcommittee:

Thank you for this opportunity to share with the Subcommittee our work to ensure that the Department of Education effectively meets the needs of its many customers. With your help, we have enjoyed considerable success in meeting a variety of management challenges, ranging from a dramatic reduction in student loan defaults to a nearly flawless transition to the Year 2000 by the Department's many computer-based systems. Our fiscal year 2001 request would help us to build upon these management improvements and, in particular, would provide critically needed resources for upgrading our financial management systems.

The Department is requesting a total of $1.2 billion in budget authority for management activities in fiscal year 2001, an increase of $83 million over the fiscal year 2000 level. This total includes $584 million in discretionary budget authority and $770 million in permanent mandatory authority under Section 458 of the Higher Education Act. The budget also includes $170 million in permanent budget authority for payments to guaranty agencies participating in the Federal Family Education Loans program.

A little more than half of the increase in discretionary budget authority for fiscal year 2001 reflects the cost of pay raises, increases in rent, and other unavoidable building-related expenses. Other increases are targeted to improving financial management and upgrading technology to improve customer service and improve administrative efficiency.

Management Improvements

We have made real progress in recent years in consolidating and improving our financial management systems. For example, new software provides automated reconciliation of our general ledger and other Department systems, including those supporting the student loan programs, as well as monthly reconciliation of our records with cash balances at Treasury. Prior to last year, we reconciled our accounts with Treasury just once a year.

Other improvements include better documentation of financial data through the use of subsidiary ledgers that help match balances and payments and more detailed transaction-level accounting.

Many of these improvements resulted from implementation of our Education Central Automated Processing System, or EDCAPS, which became fully operational in 1998. We developed EDCAPS to integrate financial management, contracts and purchasing, grants administration, and payment management functions that had previously been performed through several stand-alone systems. We have been disappointed, however, in the performance of the general ledger component of this new system. As a result, we are developing specifications for beginning the installation of a new general ledger system in fiscal year 2000. To complete installation and conversion to the new system, we are requesting $4.8 million for fiscal year 2001-an increase of $2.4 million over the fiscal year 2000 level. We are purchasing a new system to allow for the timely and accurate closing of the Department's books each fiscal year. This in turn will permit the Department to automatically produce its financial statements as required by the Federal Financial Management Improvement Act of 1996.

In addition to improved bookkeeping, we have streamlined our procurement processes. For example, over two years ago we mandated the use of the government-wide purchase card for routine purchases under $2,500 from all vendors capable of accepting card transactions. Now more than 250 Department employees save countless hours by using the card to quickly obtain supplies and make other routine purchases that formerly required thousands of individual, paper-based transactions.

We also have expanded our use of Federal supply schedules and other government-wide contracts to more rapidly obtain needed services and equipment while ensuring quality through competition and performance-based contracting. This has been particularly helpful in the information technology area, where inflexible contracting rules and procurement delays often resulted in the acquisition of technology that was obsolete by the time it was actually installed.

Our budget also includes $6 million for ED Pubs, a one-stop source for Department publications and other information products that has already saved taxpayers over $1 million in postage since beginning operation in May 1998. Customer service ratings for ED Pubs match those of premier corporations like Federal Express and Nordstrom. The $2.9 million increase over the 2000 level will support consolidation of ED Pubs funding currently provided from other accounts.

We also are asking for an additional $2.8 million for improvements to our local area network system. This system is our link to the Internet, which is rapidly becoming the backbone for nearly all of our efforts to improve customer service and strengthen our education system. The Department's web site, with its 1,600 publications and more than 30,000 files, currently attracts more than 1 million visitors a month. The availability of so much education information in one place also helps our employees do their jobs more efficiently and respond more rapidly to customer requests.

Networking technology is helping us move toward secure, paperless grant and loan processing that ultimately will save time and money for the Department and its customers alike. And a new Internet-based data collection system will help us better assess the results of our programs and initiatives, supporting faster collection of performance data while reducing the burden on States and school districts of collecting that data.

In particular, more timely program performance data will improve the usefulness of the reports we provide to Congress under the Government Performance and Results Act (GPRA). The Department submitted to Congress a pre-publication version of our GPRA annual performance plan and report at the end of February, and will deliver the final version next week. We made many improvements in this year's plan, including a tighter focus on actual outcomes, more information on data quality, and detailed descriptions of coordination across Federal programs. Nevertheless, we are still at the preliminary stage of data collection for many programs, and need to invest greater resources to obtain the type and quality of data needed to inform decisionmaking by both the Administration and the Congress.

Section 458 Request

The $770 million request for permanent mandatory authority would support the continued operation and improvement of the Department's student aid programs, which will deliver more than $54 billion in grant, loan, and work-study assistance to some 8.6 million postsecondary students in fiscal year 2001.

These funds would help to extend a record of significant accomplishment in restoring financial integrity and saving taxpayer dollars in the student aid programs. For instance, we are continuing to reduce the student loan default rate, which dropped from 22.4 percent in fiscal year 1990 to 8.8 percent in fiscal year 1997, the latest year for which data are available. At the same time, we have tripled collections, including consolidations, on defaulted loans from $1 billion in fiscal year 1993 to over $3 billion in fiscal year 1999.

The Direct Student Loan program, proposed by President Clinton in 1993 and implemented in 1994, has resulted in billions of dollars of savings for taxpayers and students. And the National Student Loan Data System, a comprehensive database of student aid recipients, has helped to prevent as much as $1 billion in grants and loans to students who were ineligible because of prior defaults on student loans.

Perhaps even more important for the long-term management of the student aid programs, the fiscal year 2001 request under Section 458 would support modernization initiatives essential to the transition of the Office of Student Financial Aid Programs to a performance-based organization, or PBO. For example, the PBO is currently implementing a blueprint for integrating and consolidating a cumbersome set of 11 student aid delivery systems. Successful reengineering of the business processes supported by these stovepipe systems into a seamless, user-friendly system is essential to achieving long-term cost savings and high-quality customer service in the student aid programs.

We continue to work to make the student aid system easier and more convenient for students and their families. For example, we anticipate that this year almost 40 percent of applicants--approximately 4 million students--will apply for financial aid electronically, instead of using a paper FAFSA application. In addition, hundreds of thousands of students are now using PINs to eliminate the need for a paper signature and speed up processing of their electronic student aid applications.


The Department's $584 million discretionary request for management remains less than 2 percent of our total discretionary budget. We continue to implement a growing budget and a number of large, high-profile education reform initiatives with one-third fewer employees than administered our programs in 1980. We are using technology to serve our customers better at lower cost and to ensure financial integrity in our programs. And we are laying the groundwork for greatly improved and more timely collection of performance data that will permit this Subcommittee and others to better assess the effectiveness of the Federal investment in education. Your support for our management request will help us continue these important tasks.

I will be happy to answer any questions you may have.

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Last Updated -- [3/28/2000] (mjj)